Demand Under Product Differentiation: An Empirical Analysis of the US Wine Market

Abstract

Oversupply has posed a number of problems for the Australian wine industry in recent times. When disaggregated from the industry level, however, the problem can be better described as a range of attribute-specific disequilibria. To date, solutions to this problem have predominantly revolved around reducing output through crop thinning or vine pulling. This paper proposes a different approach by suggesting that disequilibria may be reduced by gaining a better understanding of the demand for Australian wine. A discrete choice model of product differentiation is used to estimate the demand for wine in the United States, Australia's second largest export market. Implications of the analysis are explored.oversupply, demand for wine, product differentiation, nested logit, Demand and Price Analysis,